In-depth research from behavioral finance and portfolio design experts reveals the widening gap between financial planning and portfolio construction
BOSTON, June 18, 2024 /PRNewswire-PRWeb/ -- Nebo Wealth, the award-winning* asset allocation and portfolio design platform from global asset manager Grantham, Mayo, Van Otterloo & Co, LLC (GMO), announced today new research titled "The Perils of Outsourcing Asset Allocation to a Risk Score," the first installment of a thought leadership series that will expose critical issues caused by the wealth management industry's dependence on risk scores to determine asset allocation.
"For too long the industry has been outsourcing asset allocation decisions to the risk score," said Martin Tarlie, Product Lead for Nebo Wealth. "As a result, investors' portfolios are not personalized to their financial plan, leaving those investors increasingly exposed to sub-optimal outcomes and the risk of falling short of their financial objectives."
Key Findings from Nebo Wealth's Research:
- Limitations of Risk Scores: Nebo Wealth's research, led by behavioral finance and portfolio design experts James Montier, Matt Kadnar, and Martin Tarlie, illustrates the dangers of simplifying a client's complex financial needs into a single risk score. This approach often results in portfolios that are both disconnected from actual client goals and unresponsive to changes in clients' financial situations.
- Oversights in Asset Allocation: The industry's dependence on risk scores to dictate asset allocation neglects critical factors such as client-specific return objectives and time horizons, leading to misalignment between financial plans and portfolios and compounding risk of falling short of their long-term goals.
- Advocacy for an Investment Policy Process (IPP): The research advocates for a comprehensive Investment Policy Process that appropriately balances the crucial elements of time horizon, risk tolerance, cash flows, and return objectives into a dynamic, customized, ongoing strategy that adapts in real time to clients' changing lives and market conditions, helping to ensure precise alignment with clients' long-term financial goals at every stage.
"Over-reliance on risk scores can significantly constrain wealth management strategies," said Tarlie. "Our comprehensive research advocates for a broader, more dynamic approach that integrates the full spectrum of client objectives, circumstances, and life stages. We built Nebo Wealth not only to provide an elegant and scalable asset allocation and portfolio design platform for wealth managers, but also to challenge the conventional and misguided 'one-size-fits-all' wealth management model with a 'one-size-fits-one' model that truly puts the client first."
Read the Full Research Report: The Perils of Outsourcing Asset Allocation to a Risk Score (June 2024) access the complete proprietary research report by Nebo Wealth, which details findings and recommendations by visiting https://www.nebowealth.com/theory/the-perils-of-outsourcing-asset-allocation-to-a-risk-score
About Nebo Wealth
Nebo Wealth is an award-winning*, open architecture asset management platform that represents a leap forward in goals-based wealth management. Our pioneering approach to asset allocation and portfolio design empowers financial advisors to deliver the personalization that clients expect, with the scale and efficiency that advisors demand. http://www.nebowealth.com
About GMO
GMO is a global investment manager that brings together focused expertise within its investment teams, industry-leading research, and client solutions and service to advance clients' goals. Privately owned and renowned for its conviction in a valuation-based, long-term investment philosophy, GMO has been a partner to institutions, family offices, wealth managers, and consultants for over 45 years.
*2022 Industry Disruptor, 2023 Best Goals-Based Investment Platform, 2024 WealthTech Provider of the Year Excellence Awardee.
Media Contact
Timothy Welsh, Nebo Wealth, 415-847-4874, [email protected], www.nebowealth.com
SOURCE Nebo Wealth
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